Pacific Drilling Announces Second-Quarter 2017 Results

3.8.2017 13:00 | Business Wire

Del

Pacific Drilling S.A. (NYSE: PACD) today announced a net loss for
second-quarter 2017 of $138.1 million or $6.48 per diluted share,
compared to a net loss of $99.8 million or $4.69 per diluted share for
first-quarter 2017, and net income of $8.2 million or $0.39 per diluted
share for second-quarter 2016.

CEO Paul Reese said, “Despite a very challenging market which has
significantly impacted our revenues, we achieved solid operational
performance with a second-quarter revenue efficiency of 95.5% and
continued strong cost control. Lately, we have received an increase in
market inquiries for projects in several deepwater regions of the world
starting sometime in 2018, which is promising.”

Mr. Reese continued, “On behalf of the entire Company, I would like to
personally thank Chris Beckett, my predecessor as CEO, under whose
leadership Pacific Drilling has grown into a highly respected and
established offshore drilling contractor.”

Second-Quarter 2017 Operational and Financial
Commentary

Contract drilling revenue for second-quarter 2017 was $67.1 million,
which included $5.1 million of deferred revenue amortization, compared
to first-quarter 2017 contract drilling revenue of $105.5 million, which
included $31.1 million of deferred revenue amortization. The decrease in
revenues resulted primarily from the Pacific Santa Ana completing
its contract in January 2017 compared to being offhire throughout the
second-quarter 2017, partially offset by the Pacific Scirocco starting
its contract with Hyperdynamics in second-quarter 2017 compared to being
offhire throughout the first-quarter 2017. During second-quarter 2017,
our operating fleet achieved average revenue efficiency of 95.5%.

Operating expenses for second-quarter 2017 were $65.0 million as
compared to $60.4 million for first-quarter 2017. Operating expenses for
second-quarter 2017 included $2.6 million in amortization of deferred
costs, $1.1 million in reimbursable expenses, and $5.9 million in
shore-based and other support costs.

General and administrative expenses for second-quarter 2017 were $20.1
million, compared to $22.5 million for first-quarter 2017. Excluding
certain legal and financial advisory fees of $6.4 million in
second-quarter 2017 and $6.1 million in first-quarter 2017, our
corporate overhead expenses(b) for second-quarter 2017 were
$13.7 million, compared to $16.4 million for first-quarter 2017.

EBITDA(c) for second-quarter 2017 was $(17.6) million,
compared to EBITDA of $21.9 million in the first-quarter 2017.

For second-quarter 2017, cash flow from operations was $(73.5) million.
Cash balances, including $8.5 million in restricted cash, totaled $415.6
million as of June 30, 2017, and total outstanding debt was $3.0 billion.

On July 5, 2017, we announced the launch of a private consent
solicitation pursuant to which we solicited the consent of the holders
of the 2017 Senior Secured Notes to an extension of the maturity date of
the notes to June 1, 2018 in order to give us more time to negotiate a
refinancing transaction or undertake a holistic restructuring with all
of our creditors. The solicitation expired in accordance with its terms
on August 2, 2017 without receiving sufficient consents to approve the
maturity extension.

In light of the results of the solicitation and to ensure the Company
has sufficient liquidity in light of current market conditions and its
debt obligations, the Company is considering various means to increase
its available liquidity, including potentially seeking to raise
additional debt financing. The Company is also reviewing various ways to
further reduce costs.

If the Company is unable to complete a restructuring, or refinance or
extend the maturity of the 2017 Senior Secured Notes prior to their
maturity in December 2017, the Company may be unable to repay the Notes
at maturity, which would trigger cross-default provisions in the
Company’s other debt instruments. In addition, as previously disclosed,
the Company expects that it will be in violation of the maximum leverage
ratio covenant in its 2013 Revolving Credit Facility and its Senior
Secured Credit Facility for the fiscal quarter ending on September 30,
2017. If the Company is unable to obtain waivers of such covenants or
amendments to the debt agreements, such covenant default would entitle
the lenders under such facilities to declare all outstanding amounts
under such debt agreements to be immediately due and payable. Such
acceleration would also trigger the cross-default provisions in the
Company's other debt instruments. The Company is evaluating various
alternatives to address its liquidity and capital structure, which may
include a private restructuring or a negotiated restructuring of its
debt under the protection of Chapter 11 of the U.S. Bankruptcy Code.

CFO John Boots commented, “We continue to engage in discussions with our
shareholders, the bank lenders and the ad hoc group of holders of our
public debt on the terms of a restructuring, although there is currently
no consensus as to the form or structure of any restructuring.”

The Company will not be holding an earnings conference call this quarter.

Footnotes

(a)

Revenue efficiency is defined as actual contractual dayrate revenue
(excluding mobilization fees, upgrade reimbursements and other
revenue sources) divided by the maximum amount of contractual
dayrate revenue that could have been earned during such period.

(b)

Corporate overhead expenses is a non-GAAP financial measure. For a
definition of corporate overhead expenses and a reconciliation to
general and administrative expenses, please refer to the schedule
included in this release.

(c)

EBITDA is a non-GAAP financial measure. For a definition of EBITDA
and a reconciliation to net income, please refer to the schedules
included in this release.

About Pacific Drilling

With its best-in-class drillships and highly experienced team, Pacific
Drilling is committed to becoming the industry’s preferred
high-specification, floating-rig drilling contractor. Pacific Drilling’s
fleet of seven drillships represents one of the youngest and most
technologically advanced fleets in the world. For more information about
Pacific Drilling, including our current Fleet Status, please visit our
website at www.pacificdrilling.com.

Forward-Looking Statements

Certain statements and information contained in this press release
constitute “forward-looking statements” within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995, and are generally identifiable by the use of words such as
“believe,” “estimate,” “expect,” “forecast,” “ability to,” “plan,”
“potential,” “projected,” “target,” “would,” or other similar words,
which are generally not historical in nature.

Although the Company believes that the assumptions and expectations
reflected in their forward-looking statements are reasonable and made in
good faith, these statements are not guarantees and actual future
results may differ materially due to a variety of factors. These
statements are subject to a number of risks and uncertainties, many of
which are beyond the Company’s control.

Important factors that could cause actual results to differ materially
from expectations include: the global oil and gas market and its impact
on demand for services; the offshore drilling market, including reduced
capital expenditures by clients; changes in worldwide oil and gas supply
and demand; rig availability and supply and demand for
high-specification drillships and other drilling rigs competing with the
Company’s fleet; costs related to stacking of rigs; the Company’s
ability to enter into and negotiate favorable terms for new drilling
contracts or extensions; possible cancellation, renegotiation,
termination or suspension of drilling contracts as a result of market
changes or other reasons; the Company’s substantial level of
indebtedness; the Company’s ability to obtain waivers or amendments to
its maximum leverage ratio covenant at the end of the third quarter of
2017 if necessary, or with respect to other potential future debt
covenant defaults; the Company’s ability to continue as a going concern
and any potential bankruptcy proceeding; the Company’s ability to repay
debt and adequacy of and access to sources of liquidity; and the other
risk factors described in the Company’s filings with the SEC, including
the Company’s Annual Report on Form 20-F and Current Reports on Form
6-K. These documents are available through our website at www.pacificdrilling.com
or through the SEC’s Electronic Data and Analysis Retrieval System at www.sec.gov.

The Company does not undertake any obligation to publicly update or
revise any forward-looking statements after the date they are made,
whether as a result of new information, future events or otherwise.

issued and 21,325, 21,284 and 21,184 shares outstanding as of June
30, 2017,

March 31, 2017 and December 31, 2016, respectively

213

213

212

Additional paid-in capital

2,363,659

2,362,458

2,360,398

Accumulated other comprehensive loss

(16,931

)

(17,375

)

(19,193

)

Retained earnings

86,870

224,936

324,783

Total shareholders’ equity

2,433,811

2,570,232

2,666,200

Total liabilities and shareholders’ equity

$

5,607,141

$

5,758,902

$

5,998,207

PACIFIC DRILLING S. A. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands) (unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2017

2017

2016

2017

2016

Cash flow from operating activities:

Net income (loss)

$

(138,066

)

$

(99,847

)

$

8,234

$

(237,913

)

$

5,723

Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

Depreciation expense

69,863

69,631

68,213

139,494

136,289

Amortization of deferred revenue

(5,118

)

(31,079

)

(12,658

)

(36,197

)

(25,316

)

Amortization of deferred costs

2,556

3,306

3,253

5,862

6,088

Amortization of deferred financing costs

8,310

8,091

3,641

16,401

7,266

Amortization of debt discount

314

305

322

619

645

Deferred income taxes

(959

)

908

741

(51

)

2,456

Share-based compensation expense

1,791

2,215

1,511

4,006

3,675

Gain on debt extinguishment

—

—

(14,231

)

—

(14,231

)

Changes in operating assets and liabilities:

Accounts receivable

4,273

54,211

(723

)

58,484

29,868

Materials and supplies

513

1,197

988

1,710

2,998

Prepaid expenses and other assets

(8,531

)

(1,495

)

(3,848

)

(10,026

)

(10,903

)

Accounts payable and accrued expenses

(10,687

)

16,421

(27,456

)

5,734

(29,868

)

Deferred revenue

2,224

4,848

—

7,072

—

Net cash provided by (used in) operating activities

(73,517

)

28,712

27,987

(44,805

)

114,690

Cash flow from investing activities:

Capital expenditures

(3,297

)

(10,127

)

(13,089

)

(13,424

)

(41,677

)

Purchase of available-for-sale securities

(4,000

)

—

—

(4,000

)

—

Net cash used in investing activities

(7,297

)

(10,127

)

(13,089

)

(17,424

)

(41,677

)

Cash flow from financing activities:

Payments for shares issued under share-based compensation plan

(37

)

(154

)

(87

)

(191

)

(87

)

Proceeds from long-term debt

—

—

—

—

235,000

Payments on long-term debt

(10,058

)

(134,540

)

(51,000

)

(144,598

)

(52,875

)

Payments for financing costs

(927

)

(2,664

)

—

(3,591

)

—

Net cash provided by (used in) financing activities

(11,022

)

(137,358

)

(51,087

)

(148,380

)

182,038

Net increase (decrease) in cash and cash equivalents

(91,836

)

(118,773

)

(36,189

)

(210,609

)

255,051

Cash, cash equivalents and restricted cash, beginning of period

507,395

626,168

407,273

626,168

116,033

Cash, cash equivalents and restricted cash, end of period

$

415,559

$

507,395

$

371,084

$

415,559

$

371,084

EBITDA and Adjusted EBITDA Reconciliation

EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA is defined as earnings before interest,
taxes, depreciation and amortization, and gain from debt extinguishment.
EBITDA and adjusted EBITDA do not represent and should not be considered
an alternative to net income, operating income, cash flow from
operations or any other measure of financial performance presented in
accordance with generally accepted accounting principles in the United
States of America (“GAAP”) and our calculation of EBITDA and adjusted
EBITDA may not be comparable to that reported by other companies. EBITDA
and Adjusted EBITDA are included herein because they are used by
management to measure the Company's operations. Management believes that
EBITDA and Adjusted EBITDA present useful information to investors
regarding the Company's operating performance.

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Supplementary Data—Reconciliation of Net Income (Loss) to Non-GAAP
EBITDA and Adjusted EBITDA

(in thousands) (unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2017

2017

2016

2017

2016

Net income (loss)

$

(138,066

)

$

(99,847

)

$

8,234

$

(237,913

)

$

5,723

Add:

Interest expense

50,388

50,011

46,116

100,399

91,609

Depreciation expense

69,863

69,631

68,213

139,494

136,289

Income tax expense

247

2,076

1,379

2,323

3,232

EBITDA

$

(17,568

)

$

21,871

$

123,942

$

4,303

$

236,853

Subtract:

Gain on debt extinguishment

—

—

(14,231

)

—

(14,231

)

Adjusted EBITDA

$

(17,568

)

$

21,871

$

109,711

$

4,303

$

222,622

Corporate Overhead Expenses Reconciliation

Corporate overhead expenses is a non-GAAP financial measure defined as
general and administrative expenses less certain unusual legal expenses
related to our arbitration proceeding and patent litigation, as well as
legal and financial advisory expenses related to our on-going debt
restructuring efforts. We included corporate overhead herein because it
is used by management to measure the Company's ongoing corporate
overhead. Management believes that ongoing corporate overhead expenses
present useful information to investors regarding the financial impact
of Company's cost savings measures and optimization of overhead support
structure during the periods presented below. Non-GAAP financial
measures should be considered as a supplement to, and not as a
substitute for, or superior to, financial measures prepared in
accordance with GAAP.

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Supplementary Data—Reconciliation of General and Administrative
Expenses to Non-GAAP Corporate Overhead Expenses